Standing Committee D

[Mr. Alan Hurst in the Chair]

Commonhold and Leasehold Reform Bill [Lords]

Clause 144 - Purchase price for enfranchisement - during lease extension

Amendment moved [this day]: No. 90, in page 69, line 22, at end insert— 
'(1A) In section 9 of the 1967 Act, after subsection (2) insert— 
 ''(2A) The landlord shall provide the tenant with notice in writing of the basis on which the price payable for the house and premises has been calculated.''.'.—[Shona McIsaac.]

Shona McIsaac: I welcome you to the Chair, Mr. Hurst, and to the afternoon sitting of the Committee. Just before lunch, I was disagreeing with the hon. Member for Leominster (Mr. Wiggin). However, I have forgotten the point of his intervention, which concerned various aspects of the purchase price. He may wish to refresh my memory. If not, I shall continue with my speech and say why we should oblige the leaseholder to let the enfranchising leaseholder know how the purchase price was derived.
 There are vast disparities in the purchase price of freeholds for houses in Grimsby and Cleethorpes, yet most of those houses have the same open-market value, pay the same ground rent of about £2 a year and have the same rateable value. Many of them are in the same streets, were built at the same time and have 99-year leases. The price for enfranchisement for my constituents ranges from about £2,000 to more than £10,000. Clearly, something is not working. Detailing the purchase price will give more clarity for those who wish to enfranchise. 
 People are happy to pay a fair price for their freehold, but they object to being overcharged for something that they believe they already own. Without evidence, the freeholder cannot say, ''Hang on a minute, that is not right.'' The amendment tries to deal with that problem. I suggest that landlords and landowners should be obliged to detail the basis on which they had calculated the purchase price. For example, they should say whether it was done on an original valuation basis or a special valuation basis, and give an estimate of marriage value. As any surveyor and valuer will agree, it is easy to tinker with estimates of marriage values and some enfranchising tenants pay 100 per cent. and not 50 per cent. I disagree with marriage value on principle because freeholders receive their money on day one, but I shall come to that later. I also believe that freeholders should detail their fees. 
 In any other purchase situation, one would pay one's own fees, but not the other person's, but with enfranchisement, one has to pay both sets of fees. The leaseholder should not have to pay the freeholder's fees. I realise that people charge different fees, but the 
 vast disparity in the fees charged shows that some landowners are trying to make a fast buck. In those circumstances, the leaseholder should be able to challenge the fees on the ground of reasonableness. 
 The amendment to the Leasehold Reform Act 1967 that would oblige the freeholder to detail the prices ought also to say what the modern ground rent would be and how it has been derived, should the leaseholder choose not to proceed with enfranchisement. 
 In my introduction to the amendment, I quoted the booklet published by the Leasehold Advisory Service. It suggested that it was complicated to derive a purchase price. Because it is complicated, there is merit in simplifying the purchase price and setting down some sort of formula, as the hon. Member for Solihull (Mr. Taylor) has touched on today. That could be achieved using my amendment, as it would allow details of how purchase price was to be worked out through some sort of formula. That formula could be subject to debate and differences of opinion, but no one could disagree with the clear principle behind it. Government literature on leasehold houses already sets out a formula on how to decide whether to enfranchise. We could use that as a basis. 
 The document from LEASE gives examples of how the purchase price can be worked out. Intriguingly, one is of a house of a much higher value than those in my constituency, yet the purchase price for the freehold is given as about £2,000. That shows how things are going wrong. The information is useful, and we could also take it as the basis of setting out purchase price. 
 It is not unusual for people in their 70s and 80s to say at my advice sessions that they cannot enfranchise or afford the modern ground rent. If we are to oblige freeholders to give evidence as to how they derive sometimes outrageous figures that mean that people simply cannot afford to enfranchise, perhaps because they are elderly or on income support, the Government's literature should be much clearer. The literature provided to me by the Department is about as clear as mud. I do not feel that it helps; it adds to the confusion. 
 The Government can work with the amendment. I hope that my hon. Friend the Minister will accept it and reconsider the requests to set a formula. That would be difficult, but not impossible. In principle, we all agree that people have the right to know how the prices have been worked out, which would simplify matters. I urge her to accept my amendment and give details as to how the purchase price will be worked out. I hope that by doing so, we will avoid residents being overcharged when they buy something that they believe they already own.

John Taylor: I intervene in the debate only briefly, in general support of the hon. Member for Cleethorpes (Shona McIsaac). Nineteenth-century liberalism—[Hon. Members: ''Hear, hear!''] If there are any 19th-century liberals on the Committee, those are pretty old bones by now. Nineteenth-century liberalism, which is much admired by modern conservatism, solved many problems by leaving everything to the market. It allowed the market to
 decide. A purity in the market achieves a balance between supply and demand and fixes the price without anyone needing to intervene in a dirigiste way.
 In support of the hon. Lady, I shall say that I would normally leave everything to the market but, in this case, there is no market. Only one person owns the freehold and only one person owns the leasehold of any given property. If the leaseholder thinks that the freeholder's suggested price for enfranchisement is too high, he cannot, as he classically would, shop elsewhere and buy his freehold from someone who asks a more reasonable price. That is what one would do if one were buying a carpet. If shop A was too expensive, one might try shop B and see if it were more reasonable. There is no shopping around on the subject and in my experience the freeholder is generally in the slightly stronger bargaining position because he can choose to do nothing. Of the two parties, the only one suited by inertia is probably the freeholder. 
 That is my modest contribution on the amendment. As the Committee will know, I am disposed to be somewhat interventionist on the subject because there is no market, which means that one cannot leave everything to the market.

Sally Keeble: I also welcome you back to the Committee, Mr. Hurst.
 The amendment deals with the provision of information to the leaseholder, which has been raised repeatedly. Although some hon. Members have spoken about a formula, the amendment would not provide for one. It refers to providing 
''the tenant with notice in writing of the basis on which the price payable for the house and premises has been calculated''.
 It does not say what the calculation should be, which is what I would understand a formula to do. It is about a matter of information. My hon. Friend the Member for Cleethorpes argued well that some people in her constituency were not in a position to exercise their rights or challenge the freeholder because they were elderly, not in a strong financial position or not the sort of people who normally took to the courts. 
 The amendment would provide that a landlord should include, in his counter-notice, a written explanation of the basis on which the price had been calculated. The 1967 Act already contains powers to prescribe the contents of a landlord's counter-notice. We consider that we could achieve my hon. Friend's objectives without the need to amend the Bill, so we feel that the provision should not be included. I give her complete assurance that we would deal with the issue in secondary legislation when we considered a range of issues about prescribed notices and the provision of information. 
 There is a range of issues to consider such as those relevant to the amendment, including provision for detailed information to ensure that people have rights and are in the best possible positions to exercise them. On that basis and with those assurances that the 
 matter will be properly dealt with in secondary legislation, I ask my hon. Friend to withdraw the amendment.

Shona McIsaac: I thank my hon. Friend for her explanation. Through the amendment, I am seeking information about the structure of the 1967 Act. Accepting the amendment would give her a means to set down formulas. She said in previous sittings that it would be difficult to set down a formula, but that should not deter us. I believe that the amendment would give us that opportunity. If secondary legislation is to be introduced, will it achieve what I seek, which is to give people information? When will that secondary legislation be made? If it is not expected for another three years, it will mean too long a wait. However, if it is to be done by secondary legislation, it would give us more time than is possible with the Bill, which is the subject of a programme motion. When will the secondary legislation be introduced?

Sally Keeble: I would expect a statutory instrument to be introduced about six months after the Bill's enactment. I would expect it to be subject to the negative resolution procedure, but there will still have to be extensive consultation. My hon. Friend has already been assured that we shall deal with the price payable and so on, and there are good provisions to allow us to debate such a resolution. It would be done within six months; we are not talking about three years.

Shona McIsaac: I thank my hon. Friend for that assurance. A statutory instrument introduced within six months that is preceded by consultation is something that I can live with. During the consultation period, I shall continue vigorously to pursue the setting of a formula. Such legislation would allow for that and I am sure that the other organisations that have campaigned for a fair formula will also take part in the consultation. I am sure, too, that the hon. Member for Solihull will take part.
 I shall hold my hon. Friend to her assurance and I shall be pursuing the matter vigorously until the statutory instrument is passed. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Question proposed, That the clause stand part of the Bill.

Shona McIsaac: The clause is about the purchase price for enfranchisement during lease extension. Being able to enfranchise during lease extension is a welcome change. As I said earlier, I have a number of problems in my constituency with 99-year leases running out, because most of the houses in question were built in the early 20th century. People cannot afford to enfranchise, which, considering some of the figures that I have cited, is not surprising. Let us hope that the Minister's planned statutory instrument will put a stop to such high prices. Many people are forced to take out lease extensions. That means that they are, strictly speaking, tenants, with no further rights to
 enfranchise. I have always considered that a gross injustice, so I certainly welcome the provisions on enfranchisement during lease extension.
 My understanding of clause 144 is that the purchase price for enfranchisement during lease extension will be determined on the special valuation basis, which means that higher prices will be charged. I would appreciate it if the Minister would comment on that. If someone had been able to enfranchise on the original valuation basis, and that was their expectation when they purchased the interest and started paying their ground rent, they should be allowed to continue to enjoy the right to purchase their freehold on that basis. 
 On the 50-year extension, my argument is that if the original term of a lease was 99 or 100 years and that lease is coming up for renewal, the lessee should be able to extend it by the same period as the original term—by 99 or 100 years if that was its original length. I do not understand where the 50-year period comes from. If the freeholder takes possession of the property, as has been happening in my constituency, the house is resold with a new 99-year lease. I would like the Minister to comment on that.

Sally Keeble: My hon. Friend is right about the special valuation basis. In terms of the original valuation basis, the Government take the view that in a compulsory purchase situation, the landlord is entitled to the fair market price for their interest in the property as a whole, including the land and the building standing on it. There has been some discussion about whether the transaction could always be described as a compulsory purchase, but it is the Government's view that it could and we have applied that principle consistently.
 Under the 1967 Act the basis is more favourable to the leaseholder, which reflects the circumstances that that Act was originally intended to address. I spoke about that earlier; it applied particularly to people with leasehold houses in south Wales. Whenever the right to enfranchise has been extended, it has been on the special valuation basis. This latest change follows that precedent. Although we no longer believe the original valuation basis to be appropriate, we do not wish to interfere with the existing rights of leaseholders who qualify to enfranchise on that basis. 
 My hon. Friend also mentioned the 50-year lease extension. We do not consider that it would be right to give a leaseholder a discount on the price paid for the freehold to reflect the fact that the lease has been extended by 50 years. Leaseholders do not pay any premium for such a lease extension. It would be akin to giving a refund on goods that have not been purchased. However, leaseholders will receive a discount to reflect the value of any improvements that they have made at their own expense. 
 I hope that I have provided my hon. Friend with the explanation that she sought. The clause advances the interests of those with leasehold houses, whose cause she has continually championed, and I welcome her support for it.

Shona McIsaac: I hope that the Minister will clarify what she said about acknowledging the fact that the leaseholder has invested a lot of money in maintaining
 the property—as she says, any improvements are at the leaseholders' cost. In leasehold houses, all the improvements are at the leaseholders' expense. Houses built between, say, 1900 and 1905 have had to be rewired and the plumbing has had to be done. In many cases, they have had to be re-roofed and damp proof courses have had to be put in. That has all been done at the expense of the leaseholder—

Alan Hurst: Order. This is far too long for an intervention.

Shona McIsaac: Will my hon. Friend detail how leaseholders would be compensated for those outlays?

Sally Keeble: Is my hon. Friend talking about the original valuation or the 50-year lease extension?

Shona McIsaac: The 50-year lease extension.

Sally Keeble: The point is not so much about compensating leaseholders. It would not be right to give a leaseholder a discount on the price paid for the freehold to reflect the fact that the lease has been extended by 50 years. He will have received a substantial benefit. It is recognised that leaseholders undertake improvements to the property; that is one of the characteristics of freehold as a tenure. It is one of the reasons why people who are leaseholders regard themselves as owners, rather than as tenants. It goes with the nature of the tenure.

William Cash: There is a tendency for the debate to gravitate towards an assumption that, notwithstanding the fact that a leaseholder performs his covenants, somehow or other he is equivalent to the freeholder. This is where we should get a few things straight—the leaseholder does not have the full responsibilities that the freeholder has. It is ''Alice in Wonderland'' to imagine that that is the case. The Minister has gone along with it, and we have all been sympathetic towards the idea that the leaseholder has to be given safeguards and things of that kind. I am certainly not going down the route of saying that the leaseholder is equivalent to the freeholder in every respect; it is not true. It is not a matter of personal, or even party political opinion, or philosophy; it is a matter of law. It is inappropriate and I shall not accept a stream of misconceptions being generated in the Committee. It is nothing to do with which side one is on; we have not really discussed it until recently, through the hon. Member for Cleethorpes. She has had a sympathetic response from Conservative Members, but she should not get carried away with the idea that the leaseholder is the equivalent of the freeholder; it is not the case. The freeholder has responsibilities and costs. It is not all one way.

Shona McIsaac: I have collated evidence from my constituency and elsewhere. It shows that the freeholders of the houses do nothing and rarely, if ever, get in touch with the leaseholders after the lease is signed. I have a letter here from one of the large landowners. It states—

Alan Hurst: Order. I am sorry to interrupt the hon. Lady, but she will have a chance to make a further speech.

William Cash: We know what the hon. Member for Cleethorpes was going to say. In a debate of this kind,
 it is important to keep a sense of perspective and not to allow party political enthusiasms to get in the way.

Shona McIsaac: It is nothing to do with that.

William Cash: We a discussing a matter of law, not simply a matter of opinion. There may be some bad landlords and freeholders and the hon. Lady may have evidence from her constituency to show that that is the case, but it does not necessarily follow that one can extrapolate from the Cleethorpes experience the position in the rest of the country. Cleethorpes seems to have a special problem. We cannot take it any further than that, because we have to take her word for it. She represents Cleethorpes and has special information about it.

Shona McIsaac: Does the hon. Gentleman accept that hon. Members representing the parts of the country in which there are large numbers of leasehold properties find a great many problems? That does not happen in my constituency alone; in some 40 constituencies in this country, more than 30 per cent. of the properties are leasehold houses. Would he agree with one of the big landowners in my area, that the landlord has an association with the tenant only at the very beginning of the lease? Landlords often do absolutely nothing beyond that point and that situation is prevalent in much of the country.

William Cash: I am glad that the hon. Lady said that the situation was prevalent in much of the country, because that sums up my argument. I do not want to pursue the matter, but I do not want the debate to turn on the assumption that leaseholders are angels and freeholders are wicked; that is simply not the case. I am not speaking for freeholders and I accept some of the criticisms that have been made of them, but we must remember that freeholders provide the building in the first place.
 We have accepted the Bill and been co-operative, so I do not want to get into an unnecessarily contentious debate with the hon. Lady, because that is not how I feel. However, we need to import some balance into the argument. I do not blame her for having made a special point for her constituency, because we all do it. What she has said will go down well in her local newspapers and with her constituents, although I am not saying that she said it simply for that reason. There may be good reasons in Cleethorpes for her to adopt her view, but we should keep some perspective.

Sally Keeble: I do not want to add much to the debate. The clause balances several conflicting priorities. We have heard repeatedly throughout our proceedings that we must recognise the rights of both the freeholder and leaseholder and deal with what happened in the past, under the 1967 Act, which provided special terms for a particular group of people. We have extended the current rights of leaseholders so that they can buy during the extension, and have further undertaken that we shall consider closely the provision of information.
 Therefore, I would argue that we have made good provision within the clause.
 Question put, That the clause stand part of the Bill:—
The Committee divided: Ayes 10, Noes 7.

Question accordingly agreed to. 
 Clause 144 ordered to stand part of the Bill. 
 Clauses 145 and 146 ordered to stand part of the Bill.

Clause 147 - Extending meaning of service charge

Question proposed, That the clause stand part of the Bill.

William Cash: This clause is important in various respects. It extends the meaning of service charge and management. Schedule 9 is related to it and makes several changes to the provisions relating to the management of, and service charges in respect of, leasehold properties. The changes apply to the provisions on improvements.
 I have seen an interesting e-mail, which arrived today and was addressed to my hon. Friend the Member for Leominster, drawing our attention to this clause. It comes from a member of the commonhold and leasehold reform working party, who said that the working party had 
''informed government officers that it thought that this clause should not be in this Bill. Government has indicated that the main reason for this clause to be in this Bill is to enable PFI and other long term framework agreements and that this clause is crucial to the governments wider agenda.''—
 I do not know what the Government's agenda is. No doubt it is to win the next election—that does not mean to say that they will be successful. The e-mail continues: 
''The London borough of Camden has been piloting both PFI and Partnering with pretty unpromising results. While there is evidence supported by a couple of cases at the Leasehold Valuation Tribunal that management and monitoring of the contracts were a shambles and that, although costs escalated, performance was poor, with the authority finding that it had no appropriate measures to deal with poor performance. (Although it could withhold money, it still had to make other arrangements to deal with the defective work, plus pay compensation to residents for failure.) It was also the case that key council officers were dispensed with, leaving no officer qualified to properly monitor the contracts.
As part of the government's wider agenda, this clause will have implications for public sector workers, as well as workers in the construction industry and associated professionals, but these have been excluded from consultation.''
 The author of the e-mail says that he thinks that the clause should be removed from the Bill, or at least deferred so that it can receive the wider consultation and scrutiny that it requires. That surprises me. 
 I think that the hon. Member for Brent, North (Mr. Gardiner) is a member of the commonhold and leasehold reform working party—he might be its chairman. Is that right? Nobody seems to know. In any event, he has taken a very active part in the consideration of the Bill because he is chairman of an all-party committee. 
 As this letter emanated from the London borough of Camden—a part of the world that is not notoriously conservative—Labour Members could have put that argument. I wonder whether they have received representations along those lines and what merit they attribute to the points made. It will be interesting to know whether it is correct that a reason—possibly the main reason—for the clause was to enable PFI and other longer-term framework agreements to be implemented. We have been asked to raise the matter and it is clear that the Government will not do that. I therefore look to the Minister to reply and shall be grateful to hear what she has to say.

Sally Keeble: I am grateful to the hon. Gentleman for having raised the issue. I have met, if not the author of the letter he quoted, then someone from the group that raised the concerns about Camden. I have not had a copy of the letter, but I suspect that the concern is much more about clause 148 than clause 147. However, if you will allow me to do so, Mr. Hurst, I shall deal with those concerns under clause 147 so that we do not have to go through the matter again.
 Clause 147 is small. It refers to schedule 9 and concerns leaseholders of local authorities and registered social landlords. It would help those people—

William Cash: The letter mentions clause 147. However, in the other place, an amendment was moved on Report by Lord Richard, and replied to by Lord Falconer, in response to Baroness Gardner of Parkes. It related to estate management schemes. It seems that there was some suggestion by the Government that, although they could not find room to resolve the matter in the Bill, they were thinking of trying do so later.

Sally Keeble: The clause would help the local authorities and registered social landlords, who are often required to contribute to the cost of improvement to their buildings or estates under the terms of their leases. It would ensure that their landlord consulted them before such works were carried out and that they would be able to challenge unreasonably high bills for such work. In addition, some social landlords are being required to provide loans to cover the cost of improvements, where such costs are payable through service charges. The concerns raised with regard to clause 147 are more applicable to 148, because that clause has some implications for long-term contracts, which are relevant to PFI arrangements, among other things.
 I will respond to the hon. Gentleman on long-term contracts and then explain some of the other measures that we are taking to advance the situation. I hope that I will be able to reassure him. There will be a new requirement for landlords to consult leaseholders before entering into any contract for the provision of works or services that is due to run for more than 12 months. There is a growing tendency for landlords to enter into long-term contracts for property maintenance. Such contracts can achieve significant cost savings through economies of scale, but there is clearly scope for abuse. We want to ensure that leaseholders are made aware of plans to enter into long-term arrangements and are given the opportunity to comment. 
 Detailed consultation requirements will be specified in regulations. That will provide flexibility to deal effectively with the variety of procurement practices that are developing in the public and private sectors. I take it that the hon. Gentleman's specific area of concern is public sector procurement arrangements. He is right that several issues are being examined with respect to that. 
 We are setting up a public sector leaseholders working party to deal with the concerns raised. When I met the group that the hon. Gentleman spoke about, I gave a specific undertaking that the working party would hold its first meeting in February and the group seemed very much reassured by that. We hope that the working party will consider some of the issues in detail before coming up with regulations. That should deal with the hon. Gentleman's concerns. If any other issues arise out of the letter, I will respond to them in detail once I have had a chance to examine it. However, I think that the main concerns have been dealt with, whether they apply to clauses 147 or 148. 
 Question put and agreed to. 
 Clause 147 ordered to stand part of the Bill.

Schedule 9 - Meaning of service charge and management

Question proposed, That this schedule be the Ninth schedule to the Bill.

Bill Wiggin: Schedule 9 consists mainly of amendments to existing legislation that insert the phrase ''or improvements'' after existing references to ''repairs''. Who will decide what is an improvement and whether it is positive or damaging to the value of the property as a whole?

Sally Keeble: I do not have a precise definition of an improvement. I will write to the hon. Gentleman about that to ensure that I do not give a misleading answer here.
 Question put and agreed to. 
 Schedule 9 agreed to. 
 Clause 148 ordered to stand part of the Bill.

Clause 149 - Statements of account

Sue Doughty: I beg to move amendment No. 92, in page 72, line 18, after 'period', insert—
'on commencement of the tenancy or on notification by the tenant of his intention to terminate the tenancy.'.

Alan Hurst: With this it will be convenient to take the following amendments: No. 93, in page 72, line 18, after 'period', insert—
'and on notification by the tenant of his intention to terminate or assign the lease'.
 No. 91, in page 73, line 36, at end insert— 
'21A Penalty for non-compliance 
 If, on an application made by the tenant to a leasehold valuation tribunal, the tribunal determines that the landlord has failed to comply with the provisions of section 21(1) above, it may award compensation to the tenant in a sum not exceeding three times the service charge for the year in which the non-compliance occurred.'.

Sue Doughty: In moving the amendments, we are trying to draw attention to the problem that arises when a leasehold property is either bought or sold, by ensuring that the clause provides for regular information about service charges in a specific accounting period and a written statement of accounts. When a property is bought or sold, people are effectively under the cosh, trying to make transactions in a timely manner. At that stage, solicitors request statements about standing moneys payable.
 Some members of the Committee were present when I raised the subject on the Floor of the House. For those who were not, I will set out some of the problems that are faced when property changes hands. We all know that time is money when people buy and sell. If there is delay, the buyer or seller tends to incur a knock-on cost. He may be waiting to move into a property and so is renting. He may have to travel long distances or be waiting to raise money through the sale. Eventually, there comes a point when it can be easier to accept something than to deal with it. 
 Unscrupulous landlords have a chance to set charges that bump up the costs to an outgoing owner or possibly to charge for non-events to an incomer. I had that brought to my attention by a solicitor in Guildford who had dealt with several such properties and seen the same events occur repeatedly. For example, a constituent of mine asked for a terminal statement when he wanted to sell his property. He believed that he was owed about £250. After much pressing, he received a statement from the management company claiming that he owed £704. 
 There are reasons why solicitors tend to advise buyers to go along with the charges. When a flat or house is sold, solicitors have to serve notice on the landlord or managing agents that the property is to be sold and mortgaged and there must be a receipted copy of the notice. If that receipt is refused, the property cannot be sold on, as there must be a clean sheet. Unscrupulous landlords can delay the final statement until the last minute, in the hope or expectation that people will not query the bill, especially if they have had to go through several 
 rounds of correspondence merely to get hold of it in the first place. Such landlords hope that no questions will be asked. That is when solicitors weigh up what is in their clients' interests and often advise them to pay up rather than incur further delays. 
 When a firm of managing agents manages several leasehold properties, the leases of the flats contain a requirement that when a flat is sold the incoming owner should enter into a covenant with the landlord to observe the terms of the lease. However, leases do not state that the covenant has to be in any specific form, or that any costs have to paid to the landlord in relation to it. The managing agents stipulate that they have to approve the deed of covenant and they charge £100 plus value added tax for the privilege of doing nothing. Unless the covenant fee is paid to them, they refuse to register notices of transfer and mortgage. By that means, they regularly pick up £100 plus VAT every time one of the properties changes hands. 
 Amendments Nos. 92 and 93 belong with the other provisions that suggest that we need correct statements. I assume that the tribunal could consider the situation if the statements were incorrect and that the tenant could take the matter to a tribunal. 
 We also had substantial concerns about penalties on managing agents, which was the reason for the third amendment. No legislation will be effective without penalties and those should be enforceable. The firm of managing agents that delayed and added unjustified charges in the first case that I mentioned was expelled from the Association of Residential Managing Agents, but there is nothing to prevent it from remaining in business and continuing those practices. 
 Such exploitation by landlords or managing agents is unjustifiable, opportunistic and near criminal, and we should not rely on regulation to deal with it. Rather, the leasehold valuation tribunal should award tenants compensation at a fair level to provide a disincentive to repeat offenders, who will not want regularly to face a tribunal over the same offence. 
 In view of the debate in the other place, does the Minister have in mind another form of effective sanction against landlords or managing agents who undertake the activities that I described? 
 I have relied on the advice of the solicitor who brought the issue to my attention and who believes that such activities are widespread and wrong and go unpunished. That cannot be allowed to continue, which is why we tabled the amendments.

Sally Keeble: The existing provisions for enforcing accounting requirements are recognised to be weak and the Bill tightens them up and makes them easier to enforce. The new powers to challenge unreasonable administration charges, for example, are designed to deal with landlords who make excessive charges as a condition for consenting to the assignment of the lease—one of the issues that the hon. Member for Guildford (Sue Doughty) raised.
 The clause requires landlords to send leaseholders annual accounting statements that deal with certain matters and gives us the power to prescribe the form 
 and content of those statements through secondary legislation. As we discussed, a considerable amount of regulation will have to deal with the exact wording of several of those prescribed notices. 
 If landlords fail to provide statements on time, or those statements do not wholly or substantially meet our requirements, leaseholders will have the right to withhold service charges. That powerful sanction will give landlords a powerful incentive to comply with the law, but those who do not do so will soon discover that their source of income has dried up thanks to the new right to withhold. 
 Amendment No. 91 is intended to provide an additional enforcement mechanism. It provides that a leasehold valuation tribunal may order a landlord to pay a leaseholder up to three times the annual service charge as compensation for any failure to comply with the new requirements. That is excessive and unnecessary and the potential for such large awards could dissuade leaseholders from exercising the new right to manage or even from enfranchising given that such awards could, in turn, be made against them. The right to withhold is designed to make the requirement to produce accounting statements self-enforcing, so the potentially draconian penalty in the amendment is superfluous. 
 Amendments Nos. 92 and 93 would require landlords to provide accounting statements on commencement or termination of a tenancy or where a lease was assigned to another person. Accounting statements can take some time and effort to produce, which is why the Bill gives landlords six months to produce them. It would not be sensible to ask a landlord to produce a new accounting statement for each change in the ownership of a lease. In large blocks with a rapid turnover, it could easily become an excessive burden. 
 I have tried to demonstrate to the hon. Lady that we take seriously the reasonableness of service charges and the sanctions that will be open to leaseholders. Whenever leases change hands, there will have to be an agreement about the service charges, but it will be done in the usual way. The amendment would require a complete accounting statement. I hope that my assurance that reasonableness and other such issues will be taken into account, and that proper safeguards for leaseholders will be put in place, will allow the hon. Lady to withdraw the amendment.

Sue Doughty: I thank the Minister for her explanation. I still have some concerns about people being able to get accurate information in a timely manner when a property is bought or sold. Many people need to know where they stand financially at such times. Knowing where they will be six months down the line will not help them sort out their finances when exchanging property. Can the Minister help?

Sally Keeble: The Bill provides six months for producing accounting statements, but the amendment would cause delays. The Bill would allow for a test of reasonableness and it would give leaseholders proper sanctions. It would also allow the normal provisions to apply when deciding the amount
 owing when a lease changes hands. Leaseholders would be in a stronger position under the Bill than under the amendment, which would cause a delay.

Sue Doughty: I am still having difficulty determining the sanctions that would face someone who used that opportunity to raise charges. What sort of deterrents will be in place? At the moment, it can be a nightmare to find out what the charges will be. People in that situation settle on a realistic charge, work out the balance and then tend to walk away. They take the hit, which is not right. I still do not fully understand how someone who has been overcharged could easily get restitution. Further clarification would help.

Sally Keeble: The reasonableness of service charges can be challenged and there is also the new power of withholding. Leaseholders who have to pay charges before selling their lease will be able to challenge the reasonableness of those charges. That would be after the event, but they would be able to challenge them. The amendment would require an accounting statement to be provided on the termination or commencement of the tenancy.
 Elsewhere, the Bill provides six months for the accounting statement to be produced, because it is a complex statement. We should remember that some of the relevant blocks are quite large and that producing a statement of accounts, not just of amounts owed, every time a lease is sold would become a substantial burden. Also, the Bill provides for a period of six months, so there would be a delay. 
 We have, therefore, provided remedies. Leaseholders who had to pay service charges before selling their lease could pursue a challenge. It would be after the event, but it is the best way to achieve a reasonably smooth procedure and to avoid the delays that would be caused by production of a complete statement of accounts. I understand that some of the issues raised in this context involve large amounts of detail, but on balance our proposals will provide new remedies to enable leaseholders to challenge service charges. We have devised new sanctions against freeholders who do not produce statements of account. We feel that they will work more effectively than those suggested by the hon. Lady, which are substantial and could produce delays. 
 Question put, That the amendment be made:—
The Committee divided: Ayes 2, Noes 11.

Question accordingly negatived. 
 Clause 149 ordered to stand part of the Bill. 
 Clause 150 ordered to stand part of the Bill.

Clause 151 - Liability to pay service charges: jurisdiction

Sally Keeble: I beg to move amendment No. 107, in page 75, line 32, leave out 'or not any amount is so' and insert—
'a service charge is'.

Alan Hurst: With this we may take Government amendments Nos. 108 to 112.

Sally Keeble: The amendments are the consequence of a recent Court of Appeal decision and to explain why we consider them necessary I shall set out some background.
 Under current law, leasehold valuation tribunals can rule on whether service charges are reasonable. Clause 151 would widen their jurisdiction to allow them to examine the wider issue of liability. That would include reasonableness, because a leaseholder is not liable to pay a service charge unless it is reasonable. However, the clause goes wider and a leaseholder may not, for example, be liable to pay a service charge that is not covered by the terms of their lease or where the landlord did not properly consult on the long-term contract under which charge was incurred. 
 The clause would also allow the LVT to rule on such matters. However, a problem that has arisen in relation to the Landlord and Tenant Act 1985 might also be relevant to the Bill. In a recent Court of Appeal case, Daejan Properties v. London Leasehold Valuation Tribunal, the court ruled that, except under very limited circumstances, LVTs had jurisdiction only to decide the reasonableness of disputed service charges that were still unpaid. 
 That decision was most unfortunate from the viewpoint of both leaseholders and landlords. As leaseholders become aware of its effect, they may be inclined to withhold service charges until they are certain that they are reasonable; otherwise, it may prove difficult for them to launch a challenge. That, in turn, will create problems for managers of leasehold property, who may find it increasingly difficult to obtain payments in advance and may be reluctant to commence work without them. 
 A central factor in the view reached by the Court of Appeal was the meaning of the phrase ''alleged to be payable''. It felt that a payment that had already been made could not be said to be alleged to be payable, because it was no longer payable at all. The same phrase appears in clause 151, on service charges, and in schedule 11, on administration charges. 
 The London LVT is seeking leave to appeal against the decision in the Daejan case. To avoid doubt, however, we decided that it would be sensible to remove the contentious phrase from the new provisions. The amendments do that, as well as making consequential changes. 
 I should make it clear that our intention in clause 151 and schedule 11 is for LVTs to be able to rule on service charges and administration charges that have already been paid—an important point in the context of our previous discussion. More specifically, 
 where a service charge or administration charge has been paid, the LVT should be able to rule on the person who should have paid the charge, the person to whom it should have been paid, the amount that should have been paid, the date by which it should have been paid and the manner in which it should have been paid.

William Cash: The Minister tells us that the issue is subject to a current court case and that the Government will remove the words that are causing unnecessary contention. In the light of that, will she tell us when the matter will be resolved?

Sally Keeble: I cannot give a date now, but I shall write to the hon. Gentleman if that would be helpful.

William Cash: It would be interesting to know the outcome of the case, even though the decision to remove the words has been taken in principle and as a matter of policy. That said, I am happy to go along with the idea that we shall review the matter later, even though we must always reserve judgment on Government amendments, particularly when they are tabled late in the day. I should like to know about the case if the Minister can provide the details.

Sally Keeble: I assume that the hon. Gentleman wants to decide whether to table amendments on Report. Perhaps I can provide you, Mr. Hurst, with as many details as I can about the case before Report stage and then copy the letter to members of the Committee. That should perhaps happen as close as possible to Report stage. Presumably, the hon. Member for Stone (Mr. Cash) would rather have a decision than an early explanation that then had to be updated. If the Committee is happy with that, I propose that we proceed in that way.

John Taylor: On a point of order, Mr. Hurst. While we are discussing the correct way to deal with such a matter, which is a letter to you with copies to the rest of us, I remind the Minister that I still await a letter or copy of a letter to you from the Parliamentary Secretary, Lord Chancellor's Department, concerning the rights of the deserted spouse. I say that in a non-hostile way, knowing how busy she is and that she has all sorts of things to bear in mind.

Alan Hurst: That is not a point of order, although it skirted dangerously close to being one on occasion. I am sure that the Minister has heard what has been said.
 Amendment agreed to. 
 Amendments made: No. 108, in page 75, line 32, leave out 'or not any amount is so' and insert— 
'a service charge is'.
 No. 109, in page 76, line 13, leave out from 'having' to end of line 14 and insert— 
'made any payment.'.—[Ms Keeble.]
 Clause 151, as amended, ordered to stand part of the Bill. 
 Clauses 152 and 153 ordered to stand part of the Bill. 
 Schedule 10 agreed to. 
 Clause 154 ordered to stand part of the Bill.

Schedule 11 - Administration charges

Amendments made: No. 110, in page 122, leave out line 14. 
 No. 111, in page 122, line 16, leave out 'or not any amount is so' and insert— 
'an administration charge is'.
 No. 112, in page 122, line 34, leave out from 'having' to end of line 35 and insert— 
'made any payment.'.—[Ms Keeble.]
 Schedule 11, as amended, agreed to. 
 Clauses 155 to 158 ordered to stand part of the Bill.

Clause 159 - Requirement to notify long leaseholders

Sue Doughty: I beg to move amendment No. 98, in page 81, line 23, leave out 'must be in a prescribed form' and insert—
'must contain such information as may be prescribed'.
 This is a small amendment. Its purpose is to ensure that prescribed information is contained in the notice, but that the notice does not fail on a technicality. It would make a minor improvement to the wording. No one wants someone to fail on a technicality, as it would lead to increased costs and satellite litigation.

Sally Keeble: I will briefly tackle the concerns voiced by the hon. Member for Guildford. If I understood her correctly, she would like the notice to contain such information as may be prescribed but has not said what is to be prescribed. We have provided for that already in subsection (2), which states that the notice
''shall contain any such further information as may be prescribed''.
 I invite her to withdraw the amendment, as similar wording is already in the Bill.

Sue Doughty: Happily, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 159 ordered to stand part of the Bill. 
 Further consideration adjourned.—[Mr. Stringer.] 
 Adjourned accordingly at nine minutes to Six o'clock till Thursday 24 January at half-past Nine o'clock.